Deal activity in the E&C is still searching for a solid foundation upon which to reverse the trends noted over the first three quarters of 2018. Despite solid macro trends, including significant economic growth, a robust housing market along with an increased infrastructure investment, M&A transaction values in 2018 YTD are down 19% versus 2017 YTD. Deal volumes also show similar patterns during the same period. One positive note, deal value increased in Q3 2018 versus Q2 2018 despite a decline in deal volume.
Continued simmering trade conflicts and related geopolitical tensions are likely to weigh on traditionally strong fundamentals that have driven M&A in the past. There are no immediate signs that these will change anytime soon and the markets may see further turbulence due to key global events such as the US midterm elections and Brexit.
The ongoing challenges may have a silver lining and create opportunities in the US M&A market as buyers aggressively pursue inorganic growth to increase scale, market position, and profitability. Even with midterm elections, there is reasonable bipartisan support for a long talked about, and still tweeted, infrastructure spending initiative in the US, which will likely fuel further M&A.
“E&C sector M&A activity is being weighed down by geopolitical tensions despite very solid underlying macro-economic trends. Long-term positive economic fundamentals show no sign of weakening and will help fuel a rebound as tensions ease.”